If it’s something you have been vowing for a long time to launch into in a serious way, now is the time. Tomorrow is never a good day to begin budgeting.
Start off with one simple rule: Spend less than you make. Then begin to investigate the shortcuts that have proven to be effective in making a budget work for your financial well-being.
The people who developed The Fool’s Lazy Budget have learned where to cut corners and simplify the steps. They offer these tips:
Analyze Your Current Spending Habits
Begin with an analysis of your current spending habits. Honestly examine your outgo on every single day for three months. If you don’t lay this foundation up front your budgeting efforts are likely to fail. There are tools to help you track spending, including a 218-category spreadsheet. Put in the data then study it carefully. But that may be the hard way. A simplified one-step approach starts with a debit card review. Look at the raw data your bank provides and create your own general spending categories. Pay particular attention to the categories in which the figures make you weep. Some banks provide a year-end spending summary, with weak spots graphed in different colors on bar charts. Pay particular attention to your spending if you use cash and project the results over four weeks. Whatever your method, identify the categories where overspending is obvious.
Peek Into the Future
Take a mental trip to “the mall of your future,” as advised by Dayana Yochim of the Fool’s Lazy Budget staff. This virtual shopping spree, sans side trips to the food court, will give you a concrete view of what you want to spend. List your needs for the next three to six months. Start with the things that are not optional, of course, such as housing, food, utilities, etc. Then realistically list such things as new car tires, family vacation costs, etc. If you have plans to pay off a credit card, max out your IRA or add to your emergency fund, list these items. Than add expected expenses for long-term items you anticipate over the next year or thin the next five years. Use the lists to plot spending to match identified needs.
You now have a written plan that, if followed faithfully, will save you from impluse spending that is a budget-buster. Share the plans with family members. If practical, provide a wallet-sized outline for each person involved in family spending. Don’t ignore the potential spending that adds to the quality of life for your family. Add some agreed-upon items that will make life better over the short term and the long term. It’s sort of the old all-work-and-no-play-makes-Jack-a-dull-boy theory. Spending is more satisfying if there is room for some outlay for what you really WANT.
Set Goals
When you have your goals firmly in mind, pencil in what you estimate the costs of achieving these goals will be, on a monthly basis. For instance, if those new tires for the car are non-negotiable, start setting aside a portion of the cost over several months so the final outlay is not so overwhelming.
Save Regularly
Start saving something each pay period. Hide some money from yourself by diverting a portion of each paycheck to an account separate from your checking account. Don’t let it be available for impulse buying or those sudden moments when you see something you “just can’t do without.” Think carefully about what you think is essential. Often it isn’t. Arrange with y our bank to transfer the excess in your checking account to savings on a regular basis.
Quit Overspending
Stop overspending. You know where your own temptations lie. Set some limits and stick with them. Start an envelope system where you put an amount sufficient to cover a necessary expenditure for a month into an envelope. Typically, the four most essential expenditures for a family are housing (34 percent); transportation (18 percent); food (13 percent); and entertainment (4 percent). If it is at all possible to cut any of these categories, do so and you’ll have money to shift to other categories. Have an envelope for each category and slip in the money to cover that expense. When it’s gone, that’s it. Economize where it’s feasible.
A budget is a personal thing and you will make your own adjustments. That’s fine as long as the basics stay in place. Don’t spend more than you make. Give yourselves a savings cushion. Look ahead to avoid, as much as possible in this uncertain world, the unexpected expenses that knock you for a financial loop. You’ll save yourself a lot of stress if you keep a handle on your money. That’s called budgeting.